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Kent's town centre office markets benefit from business change

Latest analysis from Caxtons Chartered Surveyors points to how business change is raising demand for office space in many of Kent's town centre office markets. This is having a knock-on impact on capital values in the county.

Caxtons reports the prime town centre office yield in Kent fell sharply during 2016 to 6% by the end of the year, the lowest level since the financial crisis. This 200 basis points decline since 2015 has bolstered capital value growth for investors in the county's town centre office markets.

Kent prime office yield

Source: Caxtons

Business change is a key driver of rental growth that is underpinning much of the upward pressure on values. Quality town centres with good accessibility to London have a growing appeal to companies, including those that may have wholly or partly relocated from London. Companies remain cost conscious and are increasingly seeking to reduce overheads. For example, office rents in what was affordable Shoreditch now stand at £60 per square foot. This compares to £26 per square foot in Sevenoaks and £25 per square foot in Tunbridge Wells, both offering a short commute for meetings.

Furthermore, staff are increasingly seeking to work nearer home, for greater flexibility. This is reflected in a growth in flexible working practices as well as the number of freelancers providing high value services to companies in London or further afield. This is generating demand in Kent's town centres for both traditional office space as well as co-working space.

The upturn in demand has depleted available office space, which has fallen across quality town centre locations in the South East.

The loss of stock as a result of large scale office to residential conversion of older, more obsolete buildings

has added to the shortage in some locations. This has particularly damaged the availability of smaller, cheaper offices suitable for start-ups and freelancers. Potentially, this has negative implications for innovation and small business growth in the county. On the upside, increased numbers of residents in the county's towns has been positive in generating a dynamic environment for business and residents, which helps to attract high skilled staff.

The success of Kent's town centre office market has served to bolster investor demand, also placing pressure on prices. A wide range of investor groups are seeking to increase exposure to quality locations. These include a growing number of local councils, who, with the benefit of low cost debt, are joining the bidding for assets that do come to market. This has placed further pressure on values.

During 2017 Caxtons expects to see continued strong occupier demand for quality town centre locations across Kent. This will put further upward pressure on rents in some towns. Sevenoaks for example is expected to reach close to £30 per square foot this year. However, Caxtons also anticipates yields will stabilise for office assets this year.